September, 2018
Washington -- Recently I've been asked for my views on two different documentary films dealing with higher education. One is "Fail State," about for-profit colleges and how they take advantage of students. The other is "Looking Back to Move Forward: A History of Federal Student Aid," a series of mini-documentaries produced to explain the current state of federal higher education law and policy.
Actually, I was approached to appear in each, but declined. For "Fail State," I was in court against a student loan lender at the time of the filming and did not want to appear as if I was somehow attempting to try the case outside the courtroom. For "Looking Back..," I was uneasy with the very premise of the project.
"Fail State" is an excellent documentary, especially how it reveals for-profit college recruitment techniques and their disastrous consequences for unwitting victims. My only regret about the film is that it limited itself to the for-profit colleges and did not go on to link the issues with public policy failures in the student loan industry. That subject will have to wait for another documentary.
"Looking Back..." is not so good. Its purpose was to help inform policy-makers, like Congress, about how current policies and programs came about, by interviewing those who had had a hand in creating and administering them. The result is a rapid-fire juxtaposition of explanations from a myriad of legislative staffers, Department of Education officials, and interest group lobbyists. Sometimes the film is edited such that the talking heads seem to finish each others' sentences. It must be dizzying to viewers. I know almost all of those interviewed – many are personal friends – and I know the history of the Higher Education Act well, but I was left bewildered as to what the viewer is supposed to retain from it all, other than perhaps a message that federal higher education policy is a mess. After all, what we have to show for it is $1.5 trillion in student loan debt that is out of control and growing.
I should also hasten to note that some of the people interviewed do not belong in this film alongside those who have been faithful public servants. I know I would not want my sentences to be finished by those who are responsible not just for program and policy failures, but for debasing the whole federal effort. One talking head led an association whose members were scandalized by taking bribes. Another sold legal opinions to enable several student loan lenders to defraud taxpayers. Several talkers lament the failure of programs, but in fact were happy to see them go down and were instrumental in their demise. Some have profited handsomely from program and administrative dysfunction. Many in this documentary deserve a big "viewer beware" asterisk by their comments.
The fundamental problem with "Looking Back..." is that it takes a how-a-bill-becomes-a-law approach to the subject, which we all remember from fourth or eighth grade civics classes. In this view, federal policies are conceived; they are shaped into a legislative bill; senators and representatives debate them; they are passed and signed by the president, and then implemented. All the film lacks is a little scroll of parchment, with arms and legs, named "Bill."
A better way to look at all this, I think, would have been through the lens of legendary political scientist Harold Lasswell, who wrote Politics: Who Gets What, When, and How. Federal higher education spending is huge; competition for it is cut-throat, both inside and outside the confines of the law. If there has been any one single driving force shaping higher education policy over the last few decades, it is money. "Looking Back..." effects a gauzy, hubris-filled altruism over it all, which does a grave disservice to students, families, and taxpayers who have been victims of outright waste, fraud, abuse, mismanagement, and corruption. For all the good federal spending on higher education has done, it has also left a vast amount of wreckage in ruined lives that will never recover from the predators who have come to dominate the federal student aid endeavor.
To illustrate, look at events that have shaped this landscape just as much, and often even more, than the formal legislative record offered by "Looking Back...." Sallie Mae was created in 1972 as a government sponsored enterprise (GSE) to serve as a national student loan secondary market, but in the mid-1990s its leadership decided there was a great money-making opportunity and convinced Congress and the Clinton White House to allow it to put the profit motive ahead of its educational mission. "Reinventing government" was the guise for the change. Deputy Assistant Secretary Tom Wolanin, among those who appear in the film, resigned rather than be a party to it. The story of his resignation could and should have been a part of the film. Sallie Mae, now re-named Navient, has become a deeply troubled loan servicer and is currently the defendant in a lawsuit brought by the Consumer Financial Protection Bureau (CFPB), joined by state attorneys general, on behalf of victims.
An even bigger conversion of formerly non-profit educational entities to money-making corporations took place in the 1990s after Senator Ted Kennedy slipped in a last minute, non-debated amendment to an unrelated bill allowing a switch for Massachusetts-based secondary market Nellie Mae. The amendment did not limit the provision to Massachusetts, and soon secondary markets throughout the country were converting to proprietary corporations. This happened on the heels of 1992 legislation that greatly expanded student loan volume, applauded by at least some of the film's talking heads who pushed student loans as "good debt." Within a decade, new for-profit corporations in Arizona, Texas, South Dakota, and elsewhere were engaged in behaviors so outrageous newspaper editorials from coast to coast demanded that Congress act, which it did. This is not part of "Looking Back...."
In 1998, another non-debated and glossed-over change entered federal law when Congress took away bankruptcy protections for student loan borrowers except for undue hardship, an extremely high bar in practice. It happened in conference committee when conferees needed savings to score to pay for other provisions in the bill. Closing off bankruptcy options has since doomed many defaulted borrowers for life. Never able to repay their loans, they will be unable clear their credit records, to have normal homes and families.
Such lapses happened under Democrats. When Republicans came into power in 2001, it got much worse.
What soon developed was a revolving door between the student loan industry, the Department of Education, Congressional staffs, and higher education lobby groups, fueled by the scent of easy money. President Bush installed industry lobbyists in top Department of Education jobs, who lost no time in devising ways to move taxpayer money to their friends in both the for-profit colleges and in the student loan industry. The personnel and the money circulated in classic "iron triangle" pathways. Taxpayer money came back in the form of industry political contributions so as to extract yet more taxpayer money. By 2003, U.S. News and World Report outlined the situation in "Big Money on Campus." It reported, not surprisingly, that political contributions from higher education interests were growing. Fortune magazine described Big Education as competing with sums from Big Oil and Big Pharma.
Meanwhile, the appetite for student loans, to which colleges and universities of all kinds were becoming addicted, grew ever greater as students and families, in order to pay for college, were increasingly required to sign for private loans in addition to maxing out on federal loans. Many colleges routinely put private loans in their students' financial aid packages. Some financial aid officers at prestigious institutions received kickbacks for endorsing certain lenders. In 2005, at the behest of the loan industry, Congress even closed off bankruptcy protection for borrowers of private student loans.
In 2007, after the Department's Inspector General identified vast false claims by multiple lenders against taxpayers, reaching into the billions, Secretary Margaret Spellings accepted the findings but relieved the lenders of any obligation to pay the funds back. This created a moral hazard, as it showed lenders and loan servicers that there was little risk of government sanction for such behavior.
In 2010, Congress shut off one of the subsidy spigots to the lenders, but only because the Great Recession had required a federal bailout of the lenders and Congress came to the realization that much taxpayer money could be saved by using Treasury capital for all federal student loans. It was a rare bright spot* in the history of federal higher education programs in the 21st Century. Savings in the federal loan program were deployed to provide a welcome increase student grants.
But even this did not stop or even slow the growth of student loan debt, so adept had institutions become in gaming the federal financial aid system through tuition increases, institutional merit aid, and other contrivances that were geared more toward increasing their prestige rankings than helping needy students. Nor did the 2010 action cut out federal support for the largest players in the student loan industry, as they became servicers and collectors of the ever-growing volume of loans. This year has witnessed a new low: the Department of Education has taken action ("preemption") to try to prevent state attorneys general from protecting their citizens from corrupt and abusive student loan servicing and collecting practices. This audacious move came on the heels of a U.S. Supreme Court decision** that took away the "sovereign immunity" protection of one of the largest and most abusive servicers, subjecting it to state and borrower class action suits.
Unlike many of my friends and colleagues who appeared in "Looking Back..," I don't believe the federal student financial aid system can be saved by simplifying the FAFSA aid application form, harmonizing the different income-based repayment options, or even increasing grant funding, although I support those and many other reforms. The nation is losing confidence in higher education itself because of all the bad outcomes perpetrated on far too many students and their families. My recommendation: look to see how other countries do a much better job, and start over.
As to the two documentary films, watch "Fail State" and skip "Looking Back to Move Forward." Especially if you are in Congress.
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* Even this was a mixed outcome for financially needy students. Congress had long realized that lender subsidies could be cut and the proceeds moved to student grant programs, but there was insufficient political imperative to do so. That imperative came about when Congress needed $10 billion to make passage of the Affordable Care Act revenue neutral. So it put student loan provisions into the ACA, with the net result that only part of the subsidy savings went to students. This was not surprising in that borrowers have long been tapped for resources to offset costs elsewhere, whether through excessively high interest rates, origination fees, guaranty agency fees, or, most recently, outright denial of benefits earned.
** Full disclosure: the case is Oberg v. PHEAA (2017)
